UK banks 'set to unveil bailout plans'
Major British banks are likely to announce their plans to recapitalise early on Monday, a person familiar with the matter said, a move that could see the government take multibillion-pound stakes in several lenders.
Banks were in crisis talks with the government and regulators on Sunday to determine how much capital each needs from the £50-billion offered by Britain last week.
An announcement is expected before the market opens on Monday but details are still being fine-tuned, said the source, who declined to be identified.
The Sunday Times said Royal Bank of Scotland (RBS), HBOS, Lloyds TSB and Barclays could ask for a combined £35-billion lifeline. RBS may need at least £10-billion, HBOS more than £5-billion and Lloyds and Barclays more than £3-billion, according to industry sources and analysts’ estimates.
That could result in the government becoming the biggest shareholder—and even a majority investor—in RBS and HBOS.
Earlier this year, RBS shareholders had said chief executive Fred Goodwin would need to step down if the bank sought to raise more cash.
The government could take seats on the boards of banks, a government source said on Saturday, and Communities Secretary Hazel Blears told the BBC it would be considered.
“I think we will certainly be giving [that] consideration,” she told BBC Radio.
Lloyds, RBS, HBOS and Barclays all declined to comment.
British Finance Minister Alistair Darling, attending a Group of Seven finance ministers’ meeting in Washington, said on Saturday the government was to give more details early this week about its already announced £400-billion banking rescue plan.
The Sunday Times said the scale of the fund-raising could lead to trading at the London Stock Exchange (LSE) being suspended to give the market time to digest the impact.
The LSE downplayed that prospect, however. “My information is that the market will open on Monday,” a spokesperson said.
RBS, which has seen its market value fall to below £12-billion, is to ask ministers to underwrite a £15-billion cash call, the Sunday Times said.
HBOS, Britain’s biggest provider of mortgages, was seeking up to £10-billion, Lloyds wanted £7-billion and Barclays needed £3-billion, the newspaper said.
Barclays, Britain’s second-biggest bank, has said it is considering raising capital privately and is expected to try to raise funds from existing shareholders to limit any funds provided by the government.
Lloyds is in the process of buying HBOS and the fund-raising could see Lloyds renegotiate the terms of the deal, although both sides were still keen for the merger to go ahead, the Sunday Times said.
Banks were in talks over the weekend with the Treasury, the Financial Services Authority and the Bank of England. The scale of the cash required by each will depend on estimates of more losses from their exposure to subprime mortgages and other financial instruments, the source said.
Capital is the cushion a bank keeps to protect its depositors against losses. Many banks ran down their capital in recent years amid a benign economic backdrop, but have been hit by big losses in the last year and now need to recapitalise in the face of an economic recession.
Last week’s multibillion-pound package was aimed at stabilising banks and getting them lending again, but it failed to halt a collapse in share prices.
The package included a £50-billion cash injection, guaranteeing interbank lending by £250-billion to help unfreeze wholesale markets, and extending a Bank of England scheme that swaps banks’ risky assets for government debt to provide £200-billion of cash to the system.
RBS could need to raise £10-billion to rebuild its capital, analysts at Credit Suisse said on Friday. Dresdner analysts also estimated RBS needs about £10-billion and other analysts have predicted it could need more.
Barclays and HBOS will each raise about £5-billion and Lloyds needs about £4-billion, Credit Suisse said.
RBS shares fell more than 60% last week and it and HBOS have lost more than three-quarters of their value this year. The broader European bank index has halved this year as fears that more banks will fail have been stoked by the deepening financial crisis and prospect of recession.—Reuters